Starting over after bankruptcy

If you have a plan, you can put your financial life back together

Since the Great Recession millions of Americans have found themselves in dire financial straits. While filing bankruptcy is often the last resort, many have been left with no other choice.

Bankruptcy can be a devastating move, both financially and psychologically. You are unable to borrow money or use a credit card. Your credit score may be lower than your age. But there is life after bankruptcy.

Once your bankruptcy has been discharged by a court you are able to begin rebuilding your financial life, and you should waste no time in doing so. A first step is to establish, or re-establish, a bank relationship.

Checking and savings accounts

Choose a local bank or credit union and open a checking and savings account, just as soon as you have money to deposit in them. Be sure to compare fees and talk to friends and family members about banks they use.

Next, get a secured credit card. You'll have to put some money in an account to secure your purchases. In that way it works much like a debit card. The difference is the bank reports your payments to the credit bureaus -- that helps raise your credit score.

Apply for a gasoline credit card or a department store charge card. After you've used your secured credit card for a few months, it shouldn't be a problem. When you make a purchase with the card, be sure to pay off the entire balance the following month.

Pay your bills on time

Make sure you pay your bills on time. This is one of the biggest contributors to a good credit score and it costs you nothing. All you have to do is be organized and don't buy anything you can't pay for at the end of the month.

Pull your credit reports and dispute any incorrect information you find on them. After filing bankruptcy, there may be some erroneous or out of date data.

Mindy, of Beaverton, Mich., says her Chapter 7 bankruptcy discharge order was dated December 2011 but months later, TransUnion still didn't have it in her credit report.

"While Experian and Equifax are raising my credit scores due to paid off 'credit rebuilding' unsecured loans and charged off accounts due to the correctly reported bankruptcy discharge, TransUnion is reporting a Chapter 13 ongoing bankruptcy, delinquent accounts and claims the federal government never reported the Chapter 7 Bankruptcy discharge to them," Mindy wrote in a ConsumerAffairs post. "Odd, considering the other two agencies seemed to receive it just fine and dandy."

Buying a home

When you can, start building a small savings account. You'll need to adopt budget discipline and be very careful with your money. It won't be long before you'll even be able to think about purchasing a home.

According to the National Association of Realtors (NAR), 24 months after your bankruptcy has been discharged is the ideal time to apply for a mortgage. By then, if you have worked to re-establish your credit, you may be able to secure a loan at a competitive interest rate. A lower interest rates means a lower monthly payment so it pays to wait until you can get a better rate.

As you begin the process of financial recovery it may be useful to honestly examine what led you into bankruptcy in the first place. For some it was an unforeseen medical emergency that hit them with massive hospital bills. But if your bankruptcy stemmed from years of acquiring unmanageable debt, consider adopting a disciplined budget process as your first step toward restoring financial health.

That doesn't mean giving up all sources of credit. In fact, you'll need to acquire credit as part of the process of rebuilding your credit score.

It just means using credit differently than you did in the past and not letting balances accumulate. With some work, planning and patience, there is financial life after bankruptcy.

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